If you are considering buying land to either build your home or set up a business, it may be hard to get a loan from a mortgage lender. Instead, you may have to consider a land loan. Land loans are not very common as most people often buy already built property. That means there are fewer options in the market. Below is what you need to know about land loans first.
A land loan is a form of credit you use to purchase land that you intend to develop. Here are the types of land you can buy.
Improved land: This is land that has been developed and has access to the road and other utilities. It is expensive but easy to finance.
Unimproved land: This land has access to various utilities, although it still lacks some things such as electricity, gas, etc. Getting finance for unimproved and is more challenging than for improved land.
Raw land: It lacks any improvements or utilities. It is the most difficult thing to get financing for.
How Do Land Loans Work?
The process of applying for a land loan is similar to the standard mortgage. The lender evaluates your financial situation and documentation before approving the loan. Also, some land loans are similar to balloon mortgages.
Types of Land Loans
The types of land loans you can consider include:
Lender land loans: Most community banks have a higher chance of giving you a land loan than national banks. Therefore, try a financial institution closer to the land you want to buy.
SBA 504 loans: If you are planning to develop the land for business, the U.S. Small Business Administration can give you a 504 loan.
USDA rural housing site loans: If you intend to buy land in a rural area and build a primary residence, the U.S. Department of Agriculture (USDA) can offer you a loan.
Home equity loan: You can consider a home equity loan if you already own a home with significant equity.
Seller financing: The land seller may be willing to offer short-term financing for a while.